Bad debts concept


Uncollectible debts

When businesses sell on credit they expect customers will pay.  However, there is always a risk of default inherent in credit extension.  Some customers may not settle their accounts or part of their accounts.  Management of debtors therefore, must take account of the possibility of debts becoming uncollectible. There are two types of uncollectible debts; doubtful and bad debts.

Bad Debts
These are amounts due from customers that a business has determined will not be collected.  There is certainty of non settlement and it is decided no effort will be expended to collect such amounts. When a debt is considered to be irrecoverable it should be eliminated from books of accounts.

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